Comcast-Starz! War

Post-merger giant flexes muscle with suit

NEW YORK — Newly minted cable giant Comcast wasted no time flexing its muscles to drive down costs, suing John Malone’s pay TV group Starz Encore over an unusually expensive carriage deal Comcast inherited from AT&T.

“They sued? Already?” marveled one industry insider.

The suit, filed Tuesday in U.S. District Court for the Eastern District of Pennsylvania, claims Comcast’s cheaper deal with Starz should prevail on all Comcast cable systems, including those formerly owned by AT&T.

The two cablers closed their merger earlier this week.

The AT&T carriage deal was engineered by Malone when he owned both Starz Encore and cable operator TCI — later bought by AT&T. The generous pact obliged TCI/AT&T to pay about $300 million a year, for 25 years, for access to Starz Encore channels. It also made the cabler liable for certain increases in programming costs. That’s something AT&T resisted and is the subject of separate litigation in Colorado. The two sides are discussing a settlement.

“Comcast is prepared to work toward resolution of its dispute with Starz. Comcast’s declaratory judgment action against Starz was filed to preserve our legal rights,” Comcast said of its latest suit.

Starz Encore said it “believes that the claims made in the complaint are without merit and will vigorously contest them.”

Starz Encore arguably is more exposed in the latest suit, since it’s on the hook for some hefty film output deals with Disney (160 titles for around $800 million) and Sony Pictures ($1 billion for some 200 films between 2005 and 2011).

Comcast apparently had already budgeted its new company to withstand the cost of the Starz deal. It claims it will save about $300 million from cuts to other program contracts, so any additional reduction from Starz would be gravy.

Malone apparently expected Comcast’s suit but believes Liberty has the legal upper hand. One analyst said the structure of the Comcast-AT&T merger keeps the telco’s systems — and, presumably, its legal obligations — as a separate company.

Meanwhile, some industry players speculated Comcast also is using legal actions for leverage as it starts talks with Malone on their jointly owned home shopping channel QVC. Under the terms of their contract, Malone can force Comcast to buy out Liberty’s 40% stake — and Comcast doesn’t have the cash.